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Public relations advisers are being well paid by the London Stock Exchange and Deutsche Boerse, a move which hints they are trying to win over politicians who may otherwise delay the mergerCredit:
SUZANNE PLUNKETT/REUTERS

It is becoming increasingly clear that the London Stock Exchange and Deutsche Boerse believe the battle to win approval for their merger will be won or lost not in Brussels’ Place Madou, home of the European Commission’s competition watchdog, but at the Wiesbaden City Palace, wherein sits the Hessian State Parliament.

Late on Monday, the two exchange groups offered up the LSE’s French clearing arm on the altar of anti-trust. It was a long-mooted gambit – the deal had close to zero chance of being approved without a concession on clearing (a key plank of European market infrastructure over which the combined group would have had too much control) – and the exchanges came up with no other remedies. It looks like the executives steering the tie-up are confident (or have been confidently advised) that the deal has a good chance of being nodded through by Margrethe Vestager, European commissioner for competition.

Those advisers better be right. They are certainly being paid enough. The two exchanges could end up spending over £300m in fees and expenses on this merger (£304.6m to be precise). The LSE seems to be shouldering the lion’s share of the financial and corporate broking fees – up to £98m compared to Deutsche Boerse’s £51m – while both sides are paying roughly the same amount for legal and accounting advice.

German politicians want the group HQ in Frankfurt, not LondonCredit:
KAI PFAFFENBACH/REUTERS

Interestingly, though, the Germans are paying nearly two and a half times more on public relations advice than the Brits – £4.7m to £1.8m. This perhaps hints they have long suspected the merger’s final obstacle would be political. Issues like what the group will be called, the nationality of its senior executives and the location of its headquarters really shouldn’t matter. But they do – one reason why cross-border deals can end up costing over £6.5m in PR fees. And the breakdown certainly suggests that the deal has been a tougher sell in Germany.

Last week, Thomas Schaefer, finance minister of Hesse, said the headquarters of the combined exchange should be based in Frankfurt and not London as is currently planned. The LSE and Deutsche Boerse have long countered that it is only the new holding company, UK TopCo, that will be incorporated in London and that, to all intents and purposes, everything will carry on as before. But German politicians believe the brass plate could exert a magnetic pull and influence will slowly but inexorably migrate across the Channel. If that was an unpleasant thought when the deal was first proposed, the discomfit certainly won’t have been eased by the UK’s vote to quit the EU.

There are three possible ways that the LSE and Deutsche Boerse could placate the ruffled burghers. One would be to acquiesce and move the TopCo’s HQ to Frankfurt. That, of course, would just open a whole other can of political worms back in London. Another would be to have an “EU headquarters” in a third country (Amsterdam has been floated as a possibility). This is a patent, transparent and ultimately meaningless sop and there’s a good chance it would be dismissed as such by all parties.

The last would be to offer guarantees about the number of people employed, and the proportion of activity conducted, in Frankfurt. Then it would be up to the Hessian politicians to decide whether such pre-merger guarantees are worth the paper they’re invariably not written on. Kraft/Cadbury anyone?

BP has admitted, after a long period of cost cutting, that it has to spend more to get oil from its new acquisitions flowing

Cash is king for Shell and BP

Oil companies are complicated beasts but investors are simple creatures.

The large majors discover, extract, refine and transport oil and gas, produce chemicals, run petrol stations and do a plethora of other things besides. But they also pay juicy, fat dividends, which is what their shareholders, let’s be honest, are most concerned about. Work backwards from there to understand the market’s divergent reactions this month to Shell (whose shares are up 2pc) and BP (down 2.8pc) since January.

Oil companies need to produce enough cash to make the necessary investments in their myriad projects, service debts and have enough left over to make promised payouts to investors. And they must convince the market they can do this when oil is languishing around $50. That’s done by keeping a tight rein on costs and maintaining a balanced portfolio of assets from which they can extract oil or gas as efficiently as possible. Unfortunately those two aims can run at variance with each other – and sometimes in unexpected ways.

Rewind a year and investors were concerned that Shell had taken on too much debt with its acquisition of BG Group and that it would have to sell off decent assets at firesale prices to keep cash flowing. Conversely, BP was taking advantage of the low oil price to make a string of acquisitions. But last week Shell announced that it had been able to sell some ageing holdings, including in the North Sea for reasonable prices. Shell’s free cash flow has also jumped by two thirds in a year to $9bn (£7bn), well ahead of expectations.